August 3, 2022/CSL Research

Sterling Bank’s recently released H1 2022 unaudited numbers showed growth of 8.9% y/y in Interest Income to N59.1bn. Q/q Interest Income was down 3.5%. Y/y growth was largely driven by growth in Interest Income on Loans and advances to customers (up 7.9% y/y versus Net Loan growth to Customers of 12.5% y/y) and Interest Income on debt instruments at FVOCI (up 38.9% y/y versus a 44.3% increase in the quantum of debt instruments at FVOCI). Net Loan growth to Customers grew only 2.3% in H1 2022 compared with December 2021. Overall, yields on Interest Earning Assets declined to 10.9% in H1 2022 compared with 11.7% in H1 2021. 

Interest Expense was up 9.1% y/y but declined 7.9% q/q, bringing funding cost down to 3.6% in H1 2022 from 4.0% in H1 2021. Customer Deposits grew only 1.6% in H1 compared with December 2021. Overall, Net Interest Income was up 8.8% but remained flat q/q (Q2 2022 compared with Q1 2022), bringing Net Interest Margins (NIMs) down to 7.3% in H1 2022 from 7.7% in H1 2021. Notably, CASA ratio improved to 72.9% in H1 2022 from 68.1% FY 2021. 

Net Fee and Commission Income grew strongly, up 25.5% y/y and 4.7% q/q. Except for other fees and commission which declined 21.7% y/y, all other Fees and Commission Income lines showed growth. Other Income (Net trading income and Other operating income) also grew strongly, up 88.9% y/y and 107.9% q/q. The y/y growth was mainly driven by a 216.6% y/y growth in Net trading Income driven mainly by Net Trading Income on Bonds – FVPL, while Other Operating Income was up 43.5%, driven mainly by growth in sundry income. 

Operating Expenses increased 18.0% y/y. However, a stronger growth in Total Operating Income (up 20.4% y/y) led to a marginal improvement in Cost to Income Ratio (CIR ex-provisions) to 76.1% in H1 2022 (vs 77.6% in H1 2021). The OPEX growth was driven by an increase in general and administrative expenses, and other operating expenses such as the AMCON surcharge. 

The bank reports healthy asset quality ratios. Impairment Charge was up 7.4% y/y t0 N4.1bn in H1 2022, bringing H1 2022 annualized cost of risk to 1.1%. The bank reports NPL ratio of 1.1%, compared with 0.7% reported in H1 2022 and coverage ratio of 333.5%. 

Overall, both Pre-tax Profit and Profit after tax grew strongly, up 42.2% y/y and 40.8% y/y to N8.6bn and N8.0bn respectively, bringing H1 2022 annualised RoAE to 11.0% in H1 2022 from 8.7% in H1 2021.  

The bank reports Basel 2 Capital Adequacy Ratio of 14.4%, comfortably above current regulatory minimum of 10% for Sterling Bank. 

Our estimates are under review. Current Price N1.50/s.    

H1 2022 Nm

Source: Company, CSL Research.